The National Association of Securities Dealers Inc. announced today it has imposed fines totaling more than US$34 million on 15 broker-dealers in connection with the receipt of directed brokerage in exchange for preferential treatment for certain mutual fund companies.

The regulator found that the 14 retail firms, most of which sold funds offered by hundreds of different mutual fund complexes, operated “shelf space” programs, which provided certain benefits to a relatively small number of mutual fund complexes in return for directed brokerage.

The benefits included: higher visibility on the firms’ internal websites, increased access to the firms’ sales forces, participation in “top producer” or training meetings, and promotion of their funds on a broader basis than was available for other funds.

It also censured and fined one mutual fund distributor, AllianceBernstein Investment Research and Management Inc. The NASD says it paid for some of its shelf space obligations by having its affiliated investment adviser direct portfolio transactions to or for the benefit of firms to which the distributor owed revenue sharing fees.

The biggest fine of US$6.6 million went to Royal Alliance Associates Inc. of New York. The other firms fined include (in order from biggest fine to smallest): H.D. Vest Investment Services, AllianceBernstein Investment, Linsco/Private Ledger Corp., Wells Fargo Investments LLC, SunAmerica Securities Inc., FSC Securities Corp., Securities America Inc., RBC Dain Rauscher, McDonald Investments Inc., AXA Advisors LLC, Sentra Securities Corporation, Spelman & Co. Inc., Advantage Capital Corp. and Advest Inc.

The fines imposed on eight of the firms – Royal Alliance Associates, SunAmerica Securities, FSC Securities Corp., Advantage Capital Corp., Sentra Securities Corp., Spelman & Co., RBC Dain Rauscher, and McDonald Investments – included charges relating to their failure to retain emails as required by the federal securities laws and NASD rules. The fine imposed on H.D. Vest also included charges related to violations of NASD rules relating to non-cash compensation. And, H.D. Vest, RBC Dain Rauscher, and McDonald Investments were also charged with violations of NASD’s supervisory systems and procedures rule. In settling these matters, the firms involved neither admitted nor denied the charges, but consented to the entry of NASD’s findings.

NASD has brought five previous actions for similar violations, including a complaint that is still pending against American Fund Distributors and settlements with Quick & Reilly, Inc., Piper Jaffray & Co., Edward D. Jones & Co. L.P. and Morgan Stanley DW Inc.

The NASD says that today’s cases are part of its efforts to eliminate conflicts of interest in the sale of mutual funds. “When recommending mutual fund investments, firms must act on the basis of the merits of the funds and the investment objectives of the customers and not because of other benefits the brokerage firm will receive,” says NASD vice chairman Mary Schapiro. “NASD’s prohibition on the receipt of directed brokerage is designed to eliminate these conflicts of interest.”